NEW DELHI (Reuters) - The government on Saturday ordered a review of activities at all state-owned hospitals to end what the health minister called systemic corruption, as part of the new administration's crackdown on malpractice in the healthcare sector.

Prime Minister Narendra Modi's government has vowed to eradicate graft in India's $74 billion healthcare industry, where doctors receiving extra payments for referring patients to a particular clinic or receiving gifts from companies for prescribing their drugs are common.

"There are many aspects to corruption in hospitals which as a medico I know exist," Health Minister Harsh Vardhan said in a statement.

"If money is made in the allocation of beds or as kickbacks from suppliers, it is sleaze. What is equally corrupt is the silent practice of reserving beds and facilities for employees or VIPs."

Private companies dominate India's healthcare system, while government hospitals are overcrowded and lack the resources to cater to growing demand.

Though the industry is growing at 15 percent per year according to consulting firm PwC, public spending on healthcare has stagnated at about 1 percent of gross domestic product for years.

That compares to 3 percent in China and 8.3 percent in the United States, according to a World Bank database for 2012.

The review ordered on Saturday would also apply to New Delhi's premier All India Institute of Medical Sciences, where thousands of patients queue up daily for subsidized treatment.

The government crackdown started last month after a media report exposed alleged kickback arrangements between diagnostic laboratories and doctors in India's capital.

In recent months, leading doctors and advocacy groups have teamed up to try to root out corruption from the system, forming anti-graft panels at hospitals and writing open letters to the government.

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